Why Made in Germany is Struggling

Once a celebrated trademark for quality and precision, the "Made in Germany" label is struggling on the international market. Production in the German manufacturing industry stagnated throughout 2023. The industrial production is slowly dropping off. The reasons for this trend are complex, but factors such as fierce global competition, changing consumer preferences, and the country's economic policies play a significant role. Why is Germany facing economic problems in today's global environment, and which possible solutions could help the country regain its competitive edge?

The Rise of Global Competitors

One of the key reasons behind Germany's struggles is the rise of global competitors. Countries like China and South Korea, which have traditionally focused on low-cost manufacturing, are now investing heavily in cutting-edge technologies and research & development. They are rapidly catching up with Germany in terms of innovation, and their products are becoming increasingly sought-after in the international market. Additionally, the US and China’s trade war further hurt the competitiveness of German-made goods, making it more challenging for Germany to increase exports. In the green technologies sector, which was once dominated by Germany, German companies are today increasingly facing crises that threaten their existence due to political decisions in Germany and the high competitive pressure from China. German cutting-edge technology, such as solar energy, is being squeezed out of the market and German companies are experiencing economic difficulties due to the high speed of Asian competitors and their low prices.

Changing Consumer Preferences

A shift in consumer preferences is another significant factor in ‘Made in Germany’ struggles. The global trend towards personalized products and consumers who are willing to pay a premium for customized products that meet their individual needs is unfortunately having a negative impact on the German industry, which is struggling to keep up with changing consumer trends by continuing to produce standardized products that do not meet these new demands. The high standards of data protection prescribed by German law and the fear of consumers about their data privacy on the internet and at shopping events makes personalization of products and services more difficult in Germany.

The State and his inhabitants

The high Government ratio - the government expenditure in relation to GDP in Germany - of 49.8% (2022), paralyzes private initiative through taxes, levies and bureaucracy. Empirical studies suggest that growth can be increased by up to a quarter of a percentage point for every percentage point reduction in government activity. In addition to the shortage of skilled workers, the high level of bureaucracy is also paralyzing the innovative spirit of companies in Germany. The falling demand for German products from abroad and the high level of bureaucracy is forcing medium-sized companies to abandon their business. German technology, for example in the manufacture of batteries, is no longer exported abroad, but is instead produced in Germany by foreign companies and exported to the European market.

Stagnant Economic Policies

Germany has always been known for its strong economy that supports the country's industries. However, recent policies have made it difficult for manufacturing companies to innovate and compete globally. The country has a strict regulation that makes it more challenging for startups to emerge, and the tax system is not as favorable as other countries in the EU. This has limited the country's ability to adapt to new technologies and create more innovative products.

Lack of Investment in Technology

Another challenge faced by German manufacturers is a lack of investment in technology. Many companies have been reluctant to invest in new technologies and R&D because of the high costs involved, inadequate human resources, and a lack of funding sources. As a result, they have fallen behind their global competitors and have not been able to develop new products that meet changing consumer needs. Germany promises a huge increase in research funding for artificial intelligence and European coordination, but the lack of willingness of private investors in the area of ​​risk capital and the lack of will of the companies operating in the area of ​​AI (Artificial intelligence) ensure that Germany will not be able to make the step from an industrial nation to a digital service country.

Overreliance on Traditional Industries

Germany's over-reliance on traditional industries is also hurting its competitiveness. Many industries, such as automotive and manufacturing, continue to rely on traditional methods to produce goods, often overlooking new technologies that can improve efficiency and reduce costs. This overreliance leads to a lack of innovation and an inability to adapt to changing consumer trends. The decline in production in the automotive sector is not limited to just one plant or company. Many other German manufacturers are facing similar challenges and have been forced to cut back on production. This has also led to a decrease in job opportunities and an overall slowdown in the economy.

Rich country, with unequally distributed wealth

The distribution of wealth is a significant indicator of economic health and stability. In the case of Germany, the issue becomes even more pertinent. According to a study conducted by DIW think tank, Germany has the most unevenly distributed private wealth in the entire eurozone. The study revealed that while the top one percent of Germans have a personal wealth of at least 800,000 euros or $1.09 million, over a quarter of adults in Germany either have no wealth or are deep in debt. This high level of inequality in the distribution of private wealth is worrying and requires immediate attention. It not only affects the overall economic growth of a country but also has far-reaching implications on social cohesion and stability. Germany has a significantly higher number of individuals with negative wealth due to debt. This further exacerbates the existing wealth gap in the country. The majority of Germans live in rented accommodation and do not own a house, investments in shares are at a disadvantage, people continue to invest heavily in financial investments such as savings accounts. Orders in the construction industry will decline in 2024, which could lead to rising rents across the entire housing market and a stronger increase in social inequality. The socio-cultural challenges of the debate on the immigration of refugees are leading to ongoing debates on how to deal with the right-wing radical political spectrum, which is growing strongly in the polls.

Germany's manufacturing industry, and the ‘Made in Germany’ brand, are at a crossroads. To remain competitive in today's globalized world, the country must find ways to adapt to changing consumer preferences, invest in new AI driven technologies, and embrace innovative ideas. At the same time, policymakers need to revise economic policies that limit innovation and make it more comfortable for startups to emerge.